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Durable orders pause
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July 28, 1999: 3:49 p.m. ET
June increase of 0.3% is lower than economists had expected
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NEW YORK (CNNfn) - Factory orders for big-ticket goods rose at a modest pace in June, the U.S. government reported Wednesday, surprising analysts who expected much stronger demand for everything from airplanes to washing machines.
Orders for durable items - items meant to last at least three years -- rose 0.3 percent in June to a seasonally adjusted $196.95 billion, the Commerce Department said. Economists had anticipated a 1 percent gain. May's advance was revised downward to a 0.8 percent increase in total orders from the 1.2 percent gain originally reported.
Lackluster demand for new industrial equipment, which includes everything from computers to conveyor belt mechanisms, led to the lower-than-expected number, economists said. New orders for industrial equipment dropped 5.4 percent to $35.74 billion following a decline of 4.5 percent in May, the biggest monthly drop since an 8.9 percent plunge in October 1998.
Even so, "This is not a permanent state of affairs," said Ian Shepherdson, chief U.S. economist with High Frequency Economics in Valhalla, N.Y. "Exports to parts of Asia are now rising strongly, earnings are up and, if [the National Association of Purchasing Management] is right, orders will pick up in the second half.
International demand
In its June report, the NAPM survey indicated that manufacturing activity strengthened at the end of the second quarter as demand for U.S. goods abroad, particularly from Asia, began to show renewed signs of strength. The index rose to 57.0 percent in June compared with 55.2 percent in May. A reading higher than 50 reflects a growing manufacturing sector.
"In any event, a single durable good report will have little effect on the Fed," Shepherdson said.
Indeed, Fed Chairman Alan Greenspan had other things to attend to Wednesday as he delivered the second half of his Humphrey-Hawkins testimony to Congress and fielded questions from senators about the state of the economy and monetary policy.
Still, one of the many points Greenspan cautioned both senators and financial markets about in his remarks was the recovery in Asia, which the Fed is concerned may fuel faster U.S. growth and prompt a pick-up in inflation.
"Improving global prospects also mean that the U.S. economy will no longer be experiencing declines in basic commodity and import prices that held down
inflation in recent years,'' Greenspan said.
Other parts of the durable goods report affirmed that perception. Factory shipments rose 0.9 percent in June after a 1.1 percent May increase, pulling down the level of unfilled orders and confirming the resilience of the U.S. economy.
Non-restrictive trade
Not including cars and other transportation products, durable orders fell 0.4 percent, on top of a fall of 1.4 percent a month earlier. Excluding defense spending, orders rose 0.5 percent, the same as the revised 0.5 percent a month earlier.
The Fed chief also commented on restrictive trade practices that help keep U.S. factory workers employed but harm U.S. companies by hindering them from selling more competitively abroad. "We're confronted with what really amounts to a necessity on our part of reinvigorating export markets,'' Greenspan said.
Some economists viewed the lackluster numbers with a different set of glasses, seeing the drop in new and unfilled orders as a sign that the U.S. economy may be slowing from its torrid pace.
"The modest downtrend in order growth is pointing to some moderation in the months ahead," said Sherry Cooper, chief economist with brokerage Nesbitt Burns Inc. in Toronto. 
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